The Custodial Brokerage Account
The Ultimate “Teach Them Young” Wealth-Building Tool
If your child has ever asked, “Can I buy stock in Disney?” after one too many viewings of Encanto, you might just have a future investor on your hands.
While they’re still years away from paying bills or figuring out how taxes work, there is a smart way to get them started on their financial journey early: the Custodial Brokerage Account.
What Is a Custodial Brokerage Account?
A Custodial Brokerage Account is just like a regular brokerage account, but designed for minors. It’s officially known under two acronyms: UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). If that sounds like legalese, that’s because it is—but don’t worry, the actual setup is easy.
The gist:
You contribute after-tax dollars
There are no annual contribution limits
You manage the account until your child turns 18 (or 21 in some states)
The money is legally the child’s—you’re just managing it until they’re an adult
It’s perfect for parents who want to give their kids a head start on investing without the rules and restrictions that come with retirement or education-specific accounts.
So...What’s the Catch?
The main tradeoff compared to other kid-friendly accounts (like a Custodial Roth IRA or 529 plan) is that a Custodial Brokerage Account doesn’t come with tax advantages. Earnings and gains may be subject to taxes, though often at the child’s lower tax rate.
And when your child reaches adulthood? The money becomes fully theirs. No strings. No take-backs. So if they want to use the money for college, a car, or a sudden urge to backpack through Europe—they can. Let’s hope you raised them to be wise investors and travelers.
How to Set One Up
Just like setting up your own brokerage account:
Pick your brokerage (Fidelity, Schwab, Vanguard—all great options).
Open a Custodial Brokerage Account (UGMA/UTMA).
Transfer funds in—there’s no annual cap, so go as big or small as your budget allows.
Build a simple, diversified three-fund portfolio using low-cost index funds or ETFs.
You’ll manage the account and make the investment decisions until your child becomes an adult.
Why This Account Matters
Unlike the 529 plan (education-focused) or the Custodial Roth IRA (requires earned income), a Custodial Brokerage Account is beautifully flexible. It’s ideal for parents, grandparents, or generous aunties who have a long-term vision and want to give without strings attached.
Mom Brain Recap
Custodial Brokerage Account = investment account for minors, managed by you until they’re legal adults.
Funded with after-tax dollars, with no annual contribution limit.
No tax breaks, but total flexibility on how funds are used once they’re adults.
Open through brokerages like Fidelity, Schwab, or Vanguard.
Build a three-fund portfolio to keep things simple and diversified.
Best part? Use it to teach your kids how to invest and build wealth early.
Raising money-smart kids? That’s the ultimate mom flex.
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